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Pay, Reference Points, and Police Performance

  • Alexandre Mas
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    Several theories suggest that pay raises below a reference point will reduce job performance. Final offer arbitration for police unions provides a unique opportunity to examine these theories, as the police officers either receive their requested wage or receive a lower one. In the months after New Jersey police officers lose in arbitration, arrest rates and average sentence length decline and crime reports rise relative to when they win. These declines are larger when the awarded wage is further from the police union's demand. The findings support the idea that considerations of fairness, disappointment, and, more generally, reference points affect workplace behavior.

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    File URL: http://www.nber.org/papers/w12202.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12202.

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    Date of creation: May 2006
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    Publication status: published as Mas, Alexandre. "Pay, Reference Points, And Police Performance," Quarterly Journal of Economics, 2006, v121(3,Aug), 783-821.
    Handle: RePEc:nbr:nberwo:12202
    Note: LS
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    1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    2. Orley Ashenfelter, 1987. "Arbitrator Behavior," Working Papers 599, Princeton University, Department of Economics, Industrial Relations Section..
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    6. Orley Ashenfelter & Gordon Dahl, 2003. "Strategic Bargaining Behavior, Self-Serving Biases, and the Role of Expert Agents An Empirical Study of Final-Offer Arbitration," Working Papers 857, Princeton University, Department of Economics, Industrial Relations Section..
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    8. Agell, Jonas & Lundborg, Per, 1993. "Theories of Pay and Unemployment: Survey Evidence from Swedish Manufacturing Firms," Working Paper Series 380, Research Institute of Industrial Economics.
    9. Blinder, Alan S & Choi, Don H, 1990. "A Shred of Evidence on Theories of Wage Stickiness," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1003-15, November.
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    11. Verhoogen, Eric & Burks, Stephen V. & Carpenter, Jeffrey P., 2004. "Fairness and Freight-Handlers: Local Labor-Market Conditions and Wage-Fairness Perceptions in a Trucking Firm," IZA Discussion Papers 1352, Institute for the Study of Labor (IZA).
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    13. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-86, May.
    14. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
    15. John A. Rizzo & Richard J. Zeckhauser, 2003. "Reference Incomes, Loss Aversion, and Physician Behavior," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 909-922, November.
    16. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-38, June.
    17. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-25, March.
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